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Monday, September 26, 2011

Mudajaya an attractive takeover target, says OSK Research

KUALA LUMPUR: MUDAJAYA GROUP BHD [] appears to be an attractive takeover target given its depressed valuations, said OSK Investment Research.

Maintaining its Buy rating on the stock albeit with a lower fair value of RM2.82 (from RM4.15 previously), the research house said in a note Monday, Sept 26 that while it was negative on news of Mudajaya's managing director Ng Yin Loong's resignation, it retained its rating for two reasons.

'Firstly, at 4.4 times FY11 earnings, PER valuations are approximately 1.5 standard deviations from its five year mean of 12 times, based on one year forward earnings,"

'Secondly, at such cheap valuations, we feel that Mudajaya appears even more attractive as a takeover target. Our RM2.82 fair value offers 50.6% upside,' it said.

The research house also said Mudajaya was looking to get in some 'prominent figures' either as shareholders, board members or senior management.

It pointed out that some months, former BURSA MALAYSIA BHD [] chief executive officer Datuk Yusli Mohamed Yusoff was appointed to Mudajaya's board and that in 2010, there were rumours that tycoon Ananda Krishnan's Tanjong plc was interested to take a stake in Mudajaya.

OSK Research has trimmed Mudajaya's FY11-13 earnings by 2%, 9.9% and 15.5% respectively as the research said it was turning more conservative in its revenue recognition for Mudajaya's Chhattisgarh EP contract and remove associate contributions from power generation (only FY13 impact).

'To account with the potential risks associated with the leadership succession and changes, we also widen our sum-of-parts discount from 30% to 50%.

'At such a steep discount, the NPV of the Chhattisgarh IPP has been more than removed from our SOP valuation. Our FV is cut from RM1.45 to RM2.82 which implies FY111-12 PER of 6.6 times and 6.1 times, 'it said.

At 4.10pm, Mudajaya fell five sen to RM1.82 with 3.6 million shares traded.